Summary 

A review should be carried out into whether the marriage allowance is worthwhile, for both taxpayers and HMRC. Since it was introduced in 2015, its maximum value of £252 has been eroded by inflation and tax policy decisions, and it can create administrative complexities for HMRC, taxpayers and agents. Whilst ‘workarounds’ exist for some of these problems, awareness of them tends to be low. 

Detail 

The marriage allowance (MA) was introduced with effect from 6 April 2015. 

In outline, it operates as follows:

• Available to spouses and civil partners, where neither is a higher- or additional-rate taxpayer.
• Transferor gives up 10% of their personal allowance, rounded up to the nearest £10. That amount transfers to their spouse/civil partner as a basic-rate tax reducer.
• Requires an election by the transferor – digitally, on paper, by phone, or via a Self-Assessment tax return.
• Maximum value to the couple is £252 per year. 

Practical problems 

Enduring claims & interaction with self-assessment (SA)

MA claims made in-year either online or by post become “enduring claims” – ie they apply until further notice. By contrast, claims made online or by post for previous years only do not carry forward. Similarly, claims via SA have to be made on each year’s tax return. 

Where an enduring claim exists, if either spouse/civil partner submits a tax return without including a MA claim, the resulting tax calculation will commonly be overwritten to add the enduring MA claim, even if it is no longer appropriate. This can create confusion for the taxpayer and additional work for HMRC and the taxpayer/agent in resolving the position. HMRC keep MA claims on a separate system to both PAYE and SA records, relying on data flowing correctly between each. 

Other SA issues 

Where both spouses/civil partners file tax returns, recommended practice is to submit the transferor’s return first, then wait 3 days before filing the recipient's return. This is not widely known, and may be impossible for those filing close to the SA deadline. But failing to follow this advice can lead to delays in the tax returns being processed, requiring phone calls to HMRC to resolve the issue. 

Where an enduring claim is in place, HMRC recommend leaving the MA section of the transferor’s tax return blank, even where a MA claim is intended. We understand this helps avoid processing delays. However, it also results in two tax calculations – one based on the return submitted, another on the ‘final’ position once HMRC have added the MA claim. This is confusing for taxpayers/agents, creates additional work for HMRC, and can create difficulties where proof of income is required (eg mortgage applications). 

Fluctuating income 

Where the higher-earning spouse’s income fluctuates around the higher-rate tax threshold, the MA be available in one year but not the next. This can be further complicated by factors such as occasional gift aid donations and personal pension contributions, which raise the level of income at which higher rate tax starts to apply. 

Similarly, if one spouse has variable income around the personal allowance, they might be a basic rate taxpayer one year, but a non-taxpayer the next. Making a MA transfer to their basic-rate taxpayer spouse will only be beneficial in years when the lower-earner is not themselves subject to basic rate tax. 

These situations are hard to monitor. Taxpayers may struggle to ensure they make beneficial claims, and the MA makes it more complex for both the taxpayer and HMRC to be sure the correct tax is paid each year. 

Agent access 

Agents can neither make MA claims on behalf of their clients, nor withdraw enduring claims. This transfers some of the administrative burden of MA compliance onto their clients, who may lack the necessary understanding. However, building agent digital access to MA administration would require financial investment from HMRC. 

Recommendation 

The value of the MA is linked to the personal allowance and basic rate of income tax, neither of which has changed since April 2022. The value of the MA has been eroded over this time due to inflation. Fiscal drag also means as incomes rise and more taxpayers become subject to higher-rate tax, fewer can benefit from the MA. Recently extended freezes to the personal allowance and tax bands will worsen this situation. 

In view of the reduced value of the MA, and its complexities as outlined above, we would support a review and cost/benefit analysis of its value to taxpayers and the exchequer. The ATT supports reasonable simplification of the tax system. If the MA is not found to be providing worthwhile benefits, abolishing it would remove some complexity for both taxpayers and HMRC.